Corporate income tax rates in Malaysia can have a significant impact on a company’s bottom line. While it is essential to pay taxes to support public services and government initiatives, high tax rates can be a deterrent to businesses investing and operating here.
With a corporate tax rate of 15% – 24%, the question on the minds of many business owners is “How can I reduce company tax in Malaysia?”
In this corporate tax guide, we explore options from tax incentives to deductions and exemptions to help companies optimise their tax position and improve their profitability.
Stay compliant with us: Tax & Compliance Advisory in Malaysia
What is the Rate of Company tax in Malaysia?
The corporate income tax rates in Malaysia are determined by the Inland Revenue Board (IRB) or Lembaga Hasil Dalam Negeri (LHDN) and are typically reviewed on an annual basis. Generally, the rate is as follows:
| Year Assessment 2023 | Percentage (%) | |
|---|---|---|
| A company with paid-up capital not more than RM2.5 million and gross business income of not more than RM50 million | ||
|
15% | |
|
17% | |
|
24% | |
| A company other than the above category | 24% | |
Source: Lembaga Hasil Dalam Negeri (LHDN)Â
Chargeable income refers to a company’s taxable income after deducting allowable expenses and reliefs. The reduced tax rate of 17% for small and medium-sized companies with paid-up capital not exceeding RM2.5 million aims to provide a more competitive tax environment and encourage the growth of smaller businesses in Malaysia.
It is important to note that there may be additional tax incentives and exemptions available for companies operating in specific sectors or engaging in qualifying activities. Companies should consult with tax professionals to determine the most suitable tax strategies for their business and ensure compliance with Malaysian tax laws and regulations.
Maximise Your Business Expense Claims
This is a no-brainer, but you cannot afford to overlook it. You must ensure that no expenses are overlooked in your accounting records. Quite often, directors incur expenses on behalf of the company but fail to claim them back for accounting records at the end of the financial year.
To optimise your tax position as a business owner in Malaysia, it is crucial to ensure that you claim all eligible business expenses when filing your company tax returns in Malaysia. Business expenses refer to the costs incurred in the course of conducting business activities and may include expenses such as rent, utilities, office supplies, equipment, and travel expenses.
These expenses can be deducted from your company’s gross income, reducing your overall taxable income and therefore lowering your corporate income tax liability.
However, it is important to note that only eligible business expenses can be claimed, and documentation and records of these expenses should be properly maintained for tax audit purposes.
By claiming all eligible business expenses, you can maximise your tax savings and improve your company’s financial performance.
Optimise Director Salaries for Tax Efficiency
Business owners should take the time to properly use their personal allowance. With proper planning, you can find a salary and dividend combination that results in a lower overall tax bill.
It is important to carefully consider the salaries paid to your directors, as these salaries can have significant tax implications for your company. Director salaries are considered an allowable expense for tax purposes, and therefore can be deducted from your company’s gross income to reduce your taxable income. However, excessive salaries may raise red flags for the Inland Revenue Board (IRB) and potentially lead to tax audits and investigations.
Leverage Available Tax Incentives for Malaysian Companies
Businesses can take advantage of a variety of tax incentives and tax exemption schemes. For example, if you want to reduce company tax payable in Malaysia, pioneer status firms can receive up to ten years of tax holidays. There is also an investment tax allowance ranging from 60% to 100%, as well as reinvestment allowances of up to 60% on your company’s capital investment.
These incentives are common in the healthcare, venture capital, energy, conservation, information technology, manufacturing, Islamic finance, biotechnology, hospitality, and environmental protection industries.
Read more: What’s Deductible and What’s Not: An Ultimate Deep Dive into Malaysian Corporate Tax Expenses
Common Tax-Deductible Business Expenses
As stated above, you can deduct all business-related outgoings and expenses from your taxes. However, you may be unaware of what constitutes an expense. As a result, you may want to run the following list of allowable items. However, these allowable items may vary depending on your industry.
You can usually deduct the following items from your taxable income:
- Employment Costs
- Rental of Premises
- Business Insurance
- Lease Rental on Machinery and Plant
- Advertisement to Promote Sales
- Utilities, Phone, and Internet Charges
- License Renewal
- Maintenance
- Printing
- Stationery
- Travelling Allowance for Employees
- Petrol or Mileage for Employees
- Legal Fees for Debt Recovery
- Commission to Secure Sales
- Repainting of Company Premises
- Staff Training
How can InCorp Global Malaysia help?
InCorp Global provides tax compliance and reporting, advisory, and transaction services to a wide range of clients in Malaysia. With our expertise in Malaysian corporate tax, we can help you increase your business profitability, ensure high accuracy, and stay compliant with Malaysian regulations.
Find out more about our tax services in Malaysia.
FAQs About Company Tax in Malaysia
- Corporate tax is levied on Malaysian businesses with chargeable income under the Income Tax Act 1967. Taxable income includes profits, interests, dividends, royalties, premiums, rents, and other revenue. The standard corporate tax rate in Malaysia is 24%. However, small and medium enterprises (SMEs) enjoy a reduced rate of 17% on the first RM600,000 of chargeable income, with the remaining balance taxed at 24%.
- Businesses can reduce tax legally through allowable deductions, reinvestment incentives, double tax deductions, and by claiming all eligible business expenses.
- Expenses that are wholly and exclusively incurred for business purposes—such as rent, salaries, utilities, and marketing—are generally tax deductible.
- Yes. Directors’ salaries and approved benefits paid for services rendered are tax deductible for the company, provided they are reasonable and properly documented.
- Malaysia offers various incentives including pioneer status, investment tax allowance, reinvestment allowance, and incentives for R&D, green technology, and export-oriented activities.
- SMEs with paid-up capital not exceeding RM2.5 million and annual gross income not exceeding RM50 million qualify for the reduced 17% tax rate on the first RM600,000 of chargeable income.
Let InCorp Manage All Your Corporate Tax Needs
About the Author
